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2017 W-4: When and How to Update this Form

Happy new year and goodbye 2016! I hope everyone’s hangover is gone, and your brains can process all kinds of fun tax and accounting concepts.

We’ll start slow … Please allow me to introduce the Form W-4.

For Employers

Ben Harris, Numberman, LLC, working with a client at the NE Martin Luther King Blvd. office.

The W-4 is formerly known as the “Employee’s Withholding Allowance Certificate.” The first order of business in a new year is often for employers to have their employees fill out a new form W-4. This form tells the employer and/or payroll provider how much income tax to withhold from an employee’s wages.

Some employees may already have a W-4 already on file. It does not expire, but it is still a good practice to have employees fill out a new one each year. Life changes happen every day and sometimes they have tax implications. Not everyone thinks about taxes 365 days a year (and that’s OK). Doing an annual W-4 can help those who may have forgotten about changing their withholding earlier.

These are the times that employers should definitely make sure they have new W-4s:

New employees

Employees who had a change in withholding during the year

Employees claiming exemption from withholding

For Employees

For employees, changes to marital status and dependents for example, can increase or decrease how much tax is owed. The goal is to withhold enough to cover the amount of tax, but not too much, not too little. Changing the amount withheld is done on the W-4 by way of allowances claimed. It sounds easy. The problem is that employees and employers are not all tax professionals. It goes something like this:

Employer: “I need you to fill this w-4 out.”

A few minutes later

Employee: “OK … So, this box 5 asks how many allowances. What number do I claim?”

Employer: “I don’t know. I’m not a CPA. Ask your accountant.”

Employee: “I don’t have one. What should I do?”

Employer: “Well, isn’t there a worksheet thing on it?”

Somewhere in Numberman LLC fantasy land …

Both look at each other and shout: “Yes! The worksheet! Thanks IRS, you’re the best!”

The worksheet on the form is to help an employee determine the number of allowances to claim. It’s pretty simple, answer 7 questions then total the numbers for your allowance.

W-4 Pro Tip

Ben Harris, owner of Numberman LLC, and an experienced tax advisor.

If your taxes are a bit more involved or you just want a more accurate answer, you will benefit from using an online tool at IRS.gov called the “Allowance Calculator.” It considers more factors of your tax life than the worksheet. It delivers a more accurate and reliable result with how many allowances to claim and how much you can expect to owe or get back on your tax return.

TL;DR / recap

Employers — Get new W-4’s from employees

Employees — “How many allowances to claim?” Do the worksheet or use the IRS calculator.